U.P.State Sugar Corporation Ltd. vs A.T.V.Projects India Ltd.and Others

R. R. K. Trivedi, J.—In the aforesaid three petitions parties are common and the questions of law and facts involved are also identical. Learned Counsel for parties have agreed that all the petitions may be decided finally by a common judgment. Writ Petition No. 30701 of 1992 shall be the leading case. Writ Petition No. 30701 of 1992

Facts giving rise to this writ petition are that the petitioner corporation in order to carry out its scheme of modernisation and expansion of its existing sugar unit, namely Sugar Factory, Pipraich, district Gorakhpur, entered into an agreement with respondent No. 1 on 2821989. The total agreed price for this work was Rs. 1538.00 lacs. The contract was to be completed by 2751990. Paragraph 15 of this agreement provided the terms of payment. Para. 15.2 (a) provided that on receipt of the bank/insurance guarantee in the prescribed proforma of the purchasers, five per cent of the contract price, i.e. Rs. 76.9 lacs shall be paid by petitioners by way and in nature of first instalment. Para 15.2(b) further provided that on receipt of the bank/insurance guarantee on the prescribed proforma of the purchasers, ten per cent of the contract price being Rs. 153.8 lacs (Rs. one crore fifty three lacs eighty thousand only) shall be paid within two months of the signing of this agreement as second installment. The aforesaid two payments were made by petitioner to the respondent No. 1 on furnishing bank guarantee No. 20/10, dated 731989 in respect of the amount of Rs. 76.9 lacs and Bank guarantee No. 20/16, dated 1051989 for Rs. 153.8 lacs. The Bank guarantees were furnished by respondent No. 2, the Central Bank of India. On being dissatisfied with the performance of respondent No. 1 vide telegram dated 4111991. Which was followed by the letter dated 20111991, petitioner invoked the bank guarantee and required respondent No. 2 to pay the amount. Respondent No, 1 consequently filed suit. No. 680 of 1991 in the court of Civil Judge, Gorakhpur, under Section 20 of the Arbitration Act for appointment of arbitrator for adjudication of the dispute. In this suit an application was filed for grant of temporary injunction restraining petitioner from realising the aforesaid amounts of the bank guarantee. Learned Civil Judge by his order dated 2241992 granted injunction against the petitioner not to realise the amounts of the aforesaid bank guarantees until the dispute is decided by arbitrator appointed by the Court. This order was challenged by petitioner in Civil Revision No. 157 of 1992 which has been dismissed by learned IX Additional District Judge, by order dated 1881992. Aggrieved by the aforesaid two orders, this petition has been filed. Writ Petition No. 26289 of 1992

Facts, in short, giving rise to this petition are that petitioner corporation in order to carry out the scheme of modernisationcumexpansion of its sugar Unit Mahabir Sugar Mill, Siswa Bazar, district Mahrajganj, entered into an agreement with respondent No. 1 on 2941988. The total contract money for carrying out the work was Rs. 1108 lacs. Under this agreement the work was to be completed by 31.12.1989 which was subsequently extended upto 31121990. Under this agreement also the Bank guarantee No. 19/26, dated 2561988 for Rs. 20 lacs and bank guarantee No. P. B. 4511180010617, dated 2511989 for Rs. 55,40,000 were furnished by respondent No. 4, Central Bank of India. Aforesaid Bank guarantees were invoked and respondent No. 4 was required to pay the amount. Respondent No. 1 consequently filed suit No. 678 of 1991 and in this suit an application was filed for grant of temporary injunction restraining the petitioner from realising the amount of the bank guarantees. This application was allowed by order dated 2241992, aggrieved by which petitioner filed the aforesaid writ petition in this Court on 2471992. This Court on 2871992 entertained the writ petition and passed an interim order staying operation of the order of the learned Civil Judge till 31101992.

On behalf of respondent No* 1 it has been submitted that before filing writ petition in this Court petitioner filed Civil Misc. Appeal No. 415/92/74 which was later on converted into a civil revision. In this civil revision Additional District Judge vide order dated 3051992 refused to stay the order of injunction granted by the learned Civil Judge. However, this fact was not disclosed in the writ petition.

Writ Petition No. 28081 of 1992

This petition arises out of the order dated 3051992 passed by the learned Civil Judge in suit No. 301 of 1992 by which learned Civil Judge restrained petitioner from encashing the bank guarantee No. 20/7, dated 2521989 for Rs. 55,40,000 and the bank, defendant No. 2, was also restrained from paying the amount to the petitioner. The writ petition was filed in this Court on 2471992 which was entertained on 2871992 and operation of the order passed by the learned Civil Judge was stayed till 31101992. In this petition application was filed by the petitioner on 1181993 for amendment of the writ petition. By this amendment, ground No. 1 has been sought to be added in the writ petition which is to the effect that after deletion of Section 389 of the Companies Act by Section 150 of the Amendment Act, 1960, the Companies do not have any power to refer the matter to arbitration. However, this ground has neither been pressed nor argued on behalf of the petitioners. The application is consequently rejected.

In all the petitions, counter and rejoinder affidavits have been exchanged between the parties. I have heard learned Counsel for the parties.

Shri Rakesh Dwivedi, learned Counsel appearing for petitioner, has submitted that the bank guarantee given by the Bank is absolute in terms and its realisation by petitioner cannot be resisted either by the bank or respondent No. 1 A copy of the bank guarantee has been filed as Annexure2 to the writ petition. Shri Dwivedi has submitted that a persual of para. 2 of the Bank guarantee leaves no doubt that the petitioner in the sole Judge of the fact that there were justificable grounds to invoke the bank guarantee and this cannot be questioned. Same way, it is petitioner''s satisfaction whether the agreement has been performed or not. This bank guarantee has been furnished in terms of the agreement between the petitioner and respondent No. 1. It has also been agreed that the payment of the amount mentioned in the bank guarantee cannot be suspended or stayed on the ground that the dispute is pending before any Court or arbitrator. Learned Counsel has placed reliance in a judgment of Hon''ble Supreme Court in case of Hindustan Steel Wbrks Construction Ltd. v. G.S. Atwal and Company (Engineers) Pvt. Ltd. reported in AI.R. 1996 S.C. 131 : J.T. 1995(7) S.C. 26. Reliance has also been placed in judgment in case of Larsen and Toubro Ltd. v. Maharashtra State Electricity Board and others, reported in J.T. 1995(7) S.C. 18 and State of Maharashtra and another v. Mis. National Construction Company, reported in J.T. 1995(1) S.C. 155.

Learned Counsel has submitted that from perusal of the aforesaid judgments of Hon''ble Supreme Court, it is clear that the learned civil Judge could not pass the impugned order restraining the petitioner om encashing the amount of the bank guarantee which has been rightfully done by them in exercise of their bona finde rights. According to the view expressed by Hon''ble Supreme Court, the interference could be on limited ground of practice of and or to prevent irretrievable injustice. Learned Counsel has submitted that in the present case there is no pleading about fraud in the plaint nor any case of irretrievable injustice has been established. By illegal interference of the Court the purpose for which the bank guarantee was executed has in fact been defeated. Hon''ble Supreme Court has said that the Court exercising its power cannot interfere with the enforcement of bank guarantee except only in cases where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties. The trading operation would not be jettisoned and faith of the people in the efficacy of banking transactions would not be eroded pr brought to disbelief.. The learned Counsel has submitted that in the present case there was a total lack of the aforesaid grounds and the learned Judge illegally interfered with the right of the petitioner to enforce the bank guarantee.

Learned Counsel has further submitted that the petitioner is not required to give justification for invoking bank guarantee. The learned Judge has passed the impugned order on the ground that the order invoking bank guarantee did not contain reasons for the same. It is submitted that petitioner was not required to furnish any grounds. The order has been passed wholly under misconception of the legal position. The learned Counsel has submitted that the grounds raised by respondent No. 1 that the petitioner was unable to provide land for establishing the sugar plant and that lay outs were not approved and the corporation neglected to take deliveries of the most important materials sent by respondent No. 1 and they were lying in the godown, cannot be termed as fraudulent actions even if the arguments are accepted. The petitioner disputed all these facts. The land was provided to the respondent No. 1 well within time. However, he failed to complete the work. The certificates showing the utilisation of the amount advanced in respect of which bank guarantee was furnished were found to be fake and the amount was not paid to the concerned firms. The land which was the subjectmatter of Writ Petitions No. 20895 of 1989 and NO. 3592 of 1990 was only a portion of the land acquired for the purpose. By notification under the Land Acquisition Act, the total acres acquired was 49.38 acres. The litigation in the aforesaid petitions was confined to 17.25 acres. Thus there was no difficulty for respondent No. 1 in carrying out the work. Respondent No. 1 was advised to prepare general lay out and the engineering lay out in consultation with Corporation for approval. Again by letters dated 1111990 and 2411990 respondent No. 1 was asked to complete the formalities so that the third instalment could be released. However, respondent No. 1 suddenly raised demand for escalation and said that he cannot complete the plant without escalation which was against the agreement. Respondent No. 1 deliberately avoided to carry out the work for which he had agreed. The site of the project was available and shown to the representative of respondent No. 1. The trial court had not recorded any finding on the question of fraud nor any such finding could be recorded in absence of necessary pleadings nor there were any special facts to establish any irreparable loss. Same way the civil revision filed by the petitioner was dismissed as not maintainable. The petitioner is a public sector organisation and it was unbelievable that such a corporation will raise false and frivolous demand for purposes of invoking bank guarantee or can play fraud on respondent No. 1.

Learned Counsel has submitted that the contract between the corporation and the respondent No. 1 for executing the expansion project and all the bank guarantees are identical in nature. However, some additional points have been mentioned with regard to Writ Petition No. 26289 of 1992. It has been submitted that the three bank guarantees of Rs. 55.40 lacs, 20 lacs, and 33.40 lacs were involved. The first bank guarantee was in respect of the amount given in advance, second is performance guarantee and third is timely delivery and commissioning guarantee. All the three bank guarantees have been involved by the corporation. During the pendency of the writ petition the performance guarantee has been enchased. The contract was executed on 2441986, the expansion plant was to be completed by 31121988. This was extended upto 31121989. The expansion plant is alleged by ATV to have commissioned in December, 1990. The bank guarantee has been encashed on 1111991. It is incorrect to say that the bank guarantee was only upto 3131991 and, therefore, it could not be invoked on 4111991. No such pleading was raised. This plea has been raised for the first time in this Court. Advance bank guarantee had been evalidated by the Company till 31121991. The bank guarantee thus stood revalidated till 31121991 and it was valid on 4111991. About timely delivery and commissioning also. The contention is incorrect. The respondent No. 1 did not make any supply of machinery and did not commission the plant at all. The true fact is that the petitioner with the help of his own resources commissioned the plant. Respondent No. 1 cannot take any advantage. The fact that two crushing seasons had elapsed is also not available to the respondent No. 1 as the commissioning was not done by it at all.

Lastly it has been submitted that the Arbitration Act is a special Act and a complete Code with respect to arbitration. The order of injunction has been passed under Section 41(b) of the Arbitration Act, and the order passed is neither appealable nor revisable as only procedure provided in the Code of Civil Procedure has been applied. Reliance has been placed in case Union of India v. Mohindar Supply Co., AIR 1962 SC 156 and Shah Babulal Khim Ji v. Jayaben D. Kania and another, AIR 1981 SC 1786.

It has been submitted that this Court has also in case Smt. KrishnawatiDevi v. Lala Harjasmal Misra and others, AIR 1974 All 209 and Narendra Singh v. Union of India, reported in 1978(4) ALR 626 has held that the order passed under Section 41 (b) read with Second Schedule Item 4 is not appealable under Section 39 of the Arbitration Act. Same view has been expressed by their Lordships of the Supreme Court in case M/s H. M. K. Ansari C. v. Union of India and others, AIR 1984 SC 29.

It has been further submitted that the Arbitration Act is a special and complete code and it shall prevail over the Code of Civil Procedure and the powers under the Code of Civil Procedure which have not been specifically provided cannot be applicable. Reliance has been placed in case of LIC of India v. D.J. Bahadur, reported in AIR 1980 SC 2181 and M/s Banwarilal Radhey Mohan, Delhi v. The Punjab State coop. Supply & Marketing Fed. Ltd., reported in AIR 1983 Delhi 402.

It has been further submitted that the order of the learned Civil Judge is wholly illegal and arbitrary in interfering with the payment of the amount under the Bank guarantee. The question involved is identical in all the three petitions. In view of the dismissal of the revision in one case, the filing of revision in other cases would have been a mere formality. As the Writ Petition No. 30701 of 1990 was entertained by this Hon''ble Court, consequently the petitioner after giving application for withdrawal of the revision before the district Court, filed Writ Petition No. 26289 of 1992. Since the question of law and facts involved in all the three writ petitions are identical, petitioner was advised to file writ petition in this Court.

It has also been submitted that it is true that this aspect ought to have been mentioned in the writ petition but it could not be mentioned due to inadvertence and oversight. It was not with a view to overreach or mislead the Court. The application for withdrawal of the revision was allowed on 27101992. It has also been submitted that if the submission of the corporation are not accepted, they may be granted leave to file revision before the district Court. It is also incorrect to say that the bank guarantees pertaining to the sugar factory in Siswa Bazar were invoked on account of the problems arising out in respect of the sugar unit at Pipraich. The true fact is that the respondent No. 1 committed breach and had completely failed to commission the plant and for this reason the back guarantee was invoked. The impugned orders passed by the learned single Judge in all the three petitions are wholly illegal and arbitrary and cannot be sustained in law. The writ petitions deserve to be allowed.

On behalf of the respondents submissions were made by Shri S.C. Maheshwari, senior advocate and Shri Vineet Saran. In written arguments submitted certain objections styled as preliminary objections have been raised which are mentioned below:

(a) misstatement, misrepresentation of facts and concealment of material information from this Court in the writ petition;

(b) disputed questions of facts cannot be raised in the writ petition;

(c) disputed questions of facts cannot be raised in the writ petition;

(d) writ barred on principles of alternative remedy.

From a perusal of the objections mentioned above, it is clear that atleast the first three objections cannot be termed as preliminary objections. They can only be decided after examining the impugned order and the other material on record on merits. However, the question as to whether the writ petitions are barred on ground of availability of alternative remedy to the petitioner can be raised as preo, omaru pbkectopm. Therefore, this plea is being examined first.

Learned Counsel for the respondent has submitted that the petitioner has filed the writ petition without availing alternative remedy of revision of and the writ petition is not legally maintainable. This objection was confined to Writ Petitions No. 26289 of 1992 and 28081 of 1992. Learned Counsel for respondent has relied on certain cases which are being mentioned below:

(1) AIR 1961 SC 609 (Pr. 3 at 611) CA. Abraham v. Income Tax Officer (2) AIR 1964 SC 1512 (Pr 3 at 1512/13) S. Jagadeesan v. Ayya Nadar Janaki Amgmal allege. (3) AIR 1986 SC 987 Nebha & Co .v. State of Gujarat (4) AIR 1970 SC 898 Tilohchand Motichand v. KB. Munshi (5) AIR 1992 All 211 (para (6) at 214) Surendra Rao v. Regional Transport Authority (6) AIR 1992, All 291 (para 3) at 294) Om Prakash Gupta v. R.TA. ,Meemt (7) AIR 1953 All 551 (para 3) at 551) Raman Lai v. Supdt. Octroi, Allahabad, (8) 1990 UPTC1296 (AllDB) Shri Ram Industries v. State of U.P. (9) AIR 1957 SC 882 (para 6 at 884) Union of India v. T. R. Varma

Learned Counsel for petitioner, on the other hand, has submitted that the question of law and fact involved in all the three petitions are almost identical. In Writ Petition No. 30701 of 1992 petitioner filed a revision challenging the order of the learned civil Judge granting interim injunction and restraining petitioner from encashing the bank guarantee which was dismissed on 881992. The revisional court in the last paragraph has held that technically the revision is not legally maintainable as the order passed by the learned Civil Judge is well within his jurisdiction which does not suffer from any material irregularity or illegality in exercise of jurisdiction and there is no necessity of interfering with the order. The learned Counsel for petitioner submitted that in view of the aforesaid order passed by the revisional court the remedy of revision in remaining two cases would have been a futile exercise and consequently the petitioner was advised to file writ petitions straightaway in this Court as the order deprived the petitioner from realising huge amounts which were subjectmatter of the Bank guarantees. Learned Counsel has further submitted that except this revision no other remedy is available to the petitioner. As the impugned order passed by the learned Civil Judge was under Section 41 (b) of the Arbitration Act, appeal does not lie as held by Hon''ble Supreme Court in Union of India v. Mohindar Supply Company, AIR 1962 SC 156, AIR 1974 All 209 (supra) and AIR 1981 SC 1786.

I have considered the submissions of both the sides on this question. Hon''ble Supreme Court as far back as in 1957 in case of Union of India v. T. R. Varma reported in A.I.R. 1957 S.C. 882 relied on by learned Counsel for respondent, has observed as under:

"It is true that existence of another remedy does not affect the jurisdiction of the court to issue a writ but the existence of an adequate legal remedy is a thing to be taken into consideration in the matter of granting writs and where such remedy exists, it will be a sound exercise of discretion not to interfere with a petition under Article 226 unless there are good grounds therefore."

Thus, there cannot be a straight jacket formula for throwing the writ petition on ground of alternative remedy. It depends on the facts of each case as to whether the writ petition should be entertained or should be refused on the ground of alternative remedy."

In the present case it cannot be disputed that the central question involved in all the three petitions is about the encashment of the amount of the Bank guarantee. The questions of law and fact and the parties are same. In one petition, the petitioner has come to this Court after availing the remedy of revision and two have been filed without p ailing the said remedy. Thus, the approach of the revisional court on the matter is before this Court and if one petition can be decided on merits in which the objection of alternative remedy is not available, I do not find it feasible to reject the two remaining petitions on the ground of alternative remedy. All the petitions are being decided by a common judgment. Thus, in the facts'' and circumstances narrated above, I see a good ground for not relegating the petitioner to alternative remedy at this stage when the petitions have already been entertained by this Court four years back. I have seen the cases relied on by the learned Counsel for the petitioner and I have no doubt that they are distinguishable on facts and cannot be applied to the present set of facts. The preliminary objection based on the alternative remedy is this not acceptable.

Now coming to the main question as to whether the learned Civil Judge was justified in passing the impugned order dated 22 41992 restraining the petitioner from encashing the bank guarantee until the dispute is decided by the Arbitrator appointed by the Court, it would be appropriate to keep in mind the latest decisions of. Hon''ble Supreme Court on this question. Hon''ble Supreme Court in case of Hindustan Steel Workers Construction Ltd. v. G. S. Atwal Co. (supra) in para. 6 has held as under:

".............. We are of the view that the Guarantees furnished by the Bank to the appellant are unconditional and the appellant is the sole judge regarding the question as to whether any breach of contract has occurred and, if so, the amount of loss to be recovered by the appellant from the respondent. The entire dispute is pending before the Arbitrator. Whether and if so, what is the amount due to the appellant is to be adjudicated in the arbitration proceeding ................Similarly, the reasoning of the learned Single Judge that before invoking the performance guarantee the appellant should assess the guarantee of loss and damages and mention the ascertained figure, cannot be put forward to restrain the appellant, from invoking the unconditional Guarantee. As stated, the claim of the appellant, regarding the balance to be recovered on account of security deposit and other outstanding advances, is not less than the amount covered by the Bank Guarantees. In this view of the matter, we hold that the learned Judge acted illegally and without jurisdiction, in affirming the interim order of injunction against the appellant restraining it from enforcing the Bank Guarantees till disposal of the Arbitration proceedings................."

In the present case para 2 of Bank Guarantee on which reliance has been placed on behalf of the petitioner is identically worded as it was in the case before Hon''ble the Supreme Court. For convenience para 2 of the Bank Guarantee is being reproduced below:

"2. The Guarantor shall pay to the purchaser (petitioner) immediately on demand the sum under Clause 1 above without deamer and without requiring the purchaser to invoke any legal remedy that may be available to them it being understood and agreed,

Firstly, that the purchaser shall be the sole judge of and as to whether the sellers have actually delivered the machinery and equipment of the said plant against the aforesaid advance payment and the said agreement or have committed any breach of the said agreement, and

Secondly, that the right of the purchasers shall not be affected or suspended by reason of the fact that any dispute or disputes have been raised by the sellers with regard to their liability or the proceedings are pending before any Tribunal, Arbitrator or Court with regard thereto or in connection therewith, and

Thirdly, that the guarantor shall immediately pay the aforesaid guarantee amount to the purchaser on demand, it shall not be open to the guarantor to know the reasons of or to interfere or to go into the merits of the demand or to question or to challenge the demand or to know any facts affecting the demand, and

Lastly, that it shall not be open to the guarantor to require proof of the liability of the seller to pay the amount before paying the aforesaid guarantee amount to the purchasers."

Same view has been taken by Hon''ble Supreme Court in case of Larsen & Tourbro Ltd. v. Maharashtra Electricity Board and others, J.T. 1995(7) S.C. 18. Hon''ble Supreme reported in Court in this case has quoted with approval the following observations in case of Svenska Handles Hanken v. M/s Indian Charge Chrome and others, 1994(1) SCC 502.

"............in case of confirmed bank guarantees/irrevocable letters of credit, it cannot be interfered with unless there is fraud and irretrievable injustice involved in the case and fraud has to be an established fraud..............." (p.523).

"..............irretrievable injustice which was made the basis of or grant of injunction really was on the ground that the guarantee was not enchashable on its terms................." (p. 524).

"...............There may be prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. More irretrievable injustice without prima facie case of established fraud is of no consequence in restraining the enchashment of bank guarantee." (pp.526527).

If the test laid down above by Hon''ble Supreme Court is applied in the present case, there cannot be any doubt that the respondent No. 1 failed to plead and prove a prima facie case of established fraud. A copy of the plaint has been filed as Annexure4 to the writ petition. It contains 19 paragraphs and in none of the paragraphs the pleadings regarding fraud have been raised. In para. 8 of th plaint respondent No. 1 has narrated the circumstances on account of which the contract could not be performed but the facts pleaded can only be termed to be actions or omissions within the contract and they cannot be termed as fraudulent action. Para 8 of the plaint is being reproduced below:

"8. That the petitioner say and submit that inspite of innumerable reminders, both in writing and personally, the respondent No. 1 were unable to get the land released for the sugar plant for reasons best known to the respondent No. 1 until now for the plant to be commissioned as per the terms of the agreement by May, 1990. Further, in spite of the petitioner having submitted four different Engineering''s lay outs to the respondents the said defendant till date could not approve and as such the plaintiffs were unable to proceed with the execution of the project. What is more, the respondent No. 1 has failed in their duty and neglected to take deliveries of the most critical items like diesel Generating sets and Turbo Alternators sent by the petitioner and as such the same were lying at the Transports Godown incurring heavy Surcharge/storage charges. The addition, the proforma invoices seat to the respondent No. 1 against despatches in respect of machineries, steel and other items have not been paid for by them. Over and above, a number of senior officers of the plaintiff had repeatedly visited the office of the defendant No. 1 in an endeavour to start up the project work and to review the progress of the project in terms of the said agreement but to the dismay and disappointment to the petitioner the purchasers have utterly failed and neglected to perform their part of the agreement and consequently the plaintiff could not carry out the project work in terms of the agreement. In the circumstances, considering the inability of the respondent No. 1 to fulfill their commitments and in view of the rising cost of machinery, labour and other factors beyond the control of the plaintiff, the petitioner had called upon the respondent for fixing modalities for execution contract in the prevailing circumstances into the taking a realistic view from the time of entering into the agreement and the current situation. In these circumstances the petitioner pointed out the various defaults and delays/commissions of the respondent No, 1 vide their letter dated 311091 which is annexed as Ex. B5. The plaintiff has already spend over Rs. 230 Corers in the form of the advance for supply material, designs, travailing consultations etc."

Contrary to the allegations made against the petitioner in para. 8 above, the petitioner has also given reasons that respondent No. 1 did not perform the contract to its satisfaction. It has been submitted that respondent No. 1 filed fake utilisation certificates and the huge amount given as advance were not properly utilised towards the performance of the agreement. It has also been submitted that the land was acquired in time and it was made available but the work was not started, thus it remains a case of allegations and counter allegations between the parties blaming each other which can only be decided on the basis of the evidence adduced before the arbitrator but such grounds could hardly justify the interference with the invoking of the bank guarantee which has been executed in absolute and unequivocal terms. Hon''ble Supreme Court in a recent judgment in case of Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation Ltd. and others, reported in J.T. 1996(7) SC 336 has held as under:

"4. It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a tribale issue, the beneficiary cannot . .c restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance that bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocably promised to pay, on demand, the amount or liability undertaken in the without any demur or dispute in terms of the bank guarantee. The objective behind is to inculcate respect for free flow of commerce and trade and faith in the commercial banking transactions unhedged by pending disputes between the beneficiary and the contractor."

"5. It is equally settled law that in terms of the bank guarantee the beneficiary is entitled to invoke the bank guarantee and seek encashment of the amount specified in the guarantee. It does not depend upon the rest of the decision in the dispute between the parties, in case of the breach. The underlying object is that an irrevocable commitment either in the form of bank guarantee or letters of credit solemnly given by the bank must be honoured. The Court exercising its power cannot interfere with enforcement of bank guarantee/ letters of credit except only in case where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties. The trading operation would not be jettisoned and faith of the people in the efficacy of banking transactions would not be eroded or brought to disbelief. The question, therefore, is : whether the petitioner had made out any case of irreparable injury by proof of special equity or fragd so as to invoke the jurisdiction of the Court by, way of injunction to restrain the first respondent from encashing the bank guarantee. The High Court held that the petitioner has not made out either. We have carefully scanned the reason given by the High Court as well as the contention raised by the parties. On the facts, we do not finds that any case of fraud has been made out. The contention is that after promise to extend time for constructing the buildings and allotment of extra houses and the term of bank guarantee was extend, the contract was terminated. It is not a case of fraud but one of acting in terms of contract........

Thus, the law regarding the bank guarantee, as has been defined and laid down by Hon''ble Supreme Court makes it clear that the bank guarantee is an independent and distinct contract between the bank and the beneficiaries and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. The parties may be at dispute. There may be tribale issue but on the basis of the same the beneficiary cannot be prevented from encashing the bank guarantee where the bank has promised to pay on demand without any demur or dispute. The contentions raised in para. 8 to the plaint show that the bank guarantee has been illegally or improperly invoked with at the most can be termed as actions or omissions by the parties under the primary contract which can be raised before the arbitrator.

Much has been argued on the basis of the fact that land acquired by the State for petition was not made available and it amounts to playing fraud. Certain judgments have also been referred to. Fraud means to make one believe something which is not in existence. Hon''ble Supreme Court in case of Shrishti Dhawan v. M/s Shaw Bros, reported in 1992 (1) SCC 534 has considered this word exhaustively. If the fraud alleged in the present case is assessed in the light of the aforesaid judgments, it is difficult to believe that the petitioner, a public corporation, had indulged into a fraudulent action against respondent No. 1. Prima facie it does not appear to be correct. It is not denied that more than 49 acres of land was acquired by the State Government for the purpose of the expansion of the sugar factory. Some of the tenure holders challenged the land acquisition by filing writ petitions in the High Court, and for some time with regard to the part of the land acquired, interim orders were operative. The writ petitions were ultimately dismissed. The petitioner under the contract paid more than two corers. In such circumstances the plea of fraud could have been accepted by the learned courts below. There should have been a strong prima facie case in support of this plea. The absence of the plea in the pleadings has already been noted above. The revisional court, however, observed that it can be inferred even in absence of the specific pleading which, in my opinion, is not the correct view.

The courts below relying on the judgment of Hari Prasad & Co. v. Sudarshan Steel Mills, reported in AIR 1980 Delhi 174 has held that for invoking bank guarantee sufficient and justified reasons ought to have been recorded in the letter invoking bank guarantee in the absence of which the bank guarantee could not be invoked. However, in my opinion, it was wholly erroneous approach in view of the position of law in this regard expressed by Hon''ble Supreme Court. From the terms and conditions provided in the bank guarantee, the petitioner was the sole judge of the fact that the agreement has not been performed and it is entitled to invoke the bank guarantee. In view of the absolute nature of the terms and conditions agreed and provided in the bank guarantee, the payment could not be resisted on such, pleadings. With due respect 1 hold that the view expressed by the Delhi High Court in the aforesaid judgment cannot be termed now a good law in view of the various judgments of Hon''ble Supreme Court on this point of law. The order of the learned Civil Judge, dated 2241992 suffers from manifest errors of law and cannot be sustained and the learned revisional court committed a serious illegality in confirming the aforesaid order.

Learned Counsel for the respondent No. 1, however, submitted that petitioner concealed and suppressed certain material facts and thus is not entitled for equitable relief under Article 226 of the Constitution. It is stated that in original Suit No. 678 of 1991 from which Writ Petition No. 26289 of 1992 has arisen against the order dated 2241992 Misc. Appeal No. 415/92/74 was filed which was subsequently converted into revision. In this revision learned Additional District Judge refused to grant interim order on 3051992 However, this fact was not discussed in the writ petition which was filed on 2471992. The submission is that by this suppression of fact petitioner has disentitled itself for any relief. Learned Counsel for the petitioner, on the other hand, has submitted that it was only by inadvertent mistake that the fact was not mentioned in the writ petition though in para. 7 of the rejoinder affidavit it has been stated that the application for withdrawal of revision had already been moved before the writ petition was filed. The application for withdrawal was subsequently allowed on 2710 1992. It has been submitted that the omission was not with any mala fide object.

I have considered the submissions of learned Counsel for the parties. Though the lapse on the part of the petitioner cannot be appreciated and approved, however, in the facts and circumstances of the present case when in two petitions the relief is being granted on the same facts, it will not be proper to deny relief in the present case. It is expected that the public corporation like the petitioner shall not commit such a mistake in future. Along with the written arguments, certified copies of the order dated 1551996, passed by learned Additional Civil Judge (Senior Division), Gorakhpur in Suit No. 678 of 1991 and Original Suit No. 301 of 1992 have also been filed which show that the dispute has already been referred to the arbitrator and the parties have been retired to give the names of the arbitrators. The order in the third case, namely, in Suit No. 680 of 1991 has not been filed but it is expected that it may also have been decided by now. Respondent No. 1 thus can raise all the questions before the arbitrator and can realise the entire amount if the invocation of the bank guarantee was not justified and the respondent No. 1 can realise the whole amount with damages and thus he will not suffer irreparable loss and balance of convenience does not lie in his favour as held by Hon''ble Supreme Court in the case mentioned above.

For the reasons stated above, all the three petitions are allowed. The impugned orders dated 2241992 and 1881992, Annexures9 and 10 respectively, in Writ Petition No. 30701 of 1992, are quashed. Similarly, order dated 2241992 in Writ Petition No. 26289 1992. Annexure 4, and order dated 3051992 in Writ Petition No. 28081 of 1992, Annexure5, are quashed. There will be no order as to costs.